American 15-year-olds continue to perform no better than at the industrial-world average in reading and science, and below that in mathematics. According to the results of the 2009 Program for International Student Assessment (PISA) tests, released in December 2010 by the Organisation for Economic Co-operation and Development (OECD), the United States performed only at the international average in reading, and trailed 18 and 23 other countries in science and math, respectively. Students in China’s Shanghai province outscored everyone.

But is there anything in the data the OECD has accumulated to give policymakers reason to believe that merit pay works? Do the countries that pay teachers based on their performance score higher on PISA tests? Based on my new analysis, the answer is yes. A little-used survey conducted by the OECD in 2005 makes it possible to identify the developed countries participating in PISA that appear to have some kind of performance pay plan. Linking that information to a country’s test performance, one finds that students in countries with performance pay perform at higher levels in math, science, and reading. Specifically, students in countries that permit teacher salaries to be adjusted for outstanding performance score approximately one-quarter of a standard deviation higher on the international math and reading tests, and about 15 percent higher on the science test, than students in countries without performance pay.